Target the high end
Everyone thought John Vatistas was nuts. But he's proving why the slowdown is an ideal time to start an upscale real estate brokerage.
By Paul Kaihla, Business 2.0 senior writer

(Business 2.0 Magazine) -- During the recent boom, few housing markets in America drew more pure speculators than Phoenix and its desert suburbs. Developers put up more than 280,000 homes in the region between 2000 and 2005, and median home prices shot up by 79 percent.

And one bubble helped to inflate another: There are more than 38,000 real estate agents in the region - with just 48,000 homes for sale now, as the market slides back to reality.

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While thousands of agents are expected to drop their licenses, one entrepreneur is turning the great agent shakeout into a thriving niche business: a real estate brokerage tailored for high-end clients and luxury homes.

Last year John Vatistas, who'd been running a mortgage and title firm in Phoenix, invested $17 million in just such a startup. "People asked, 'Why are you doing this in a bad market?'" Vatistas says. "They thought I was nuts."

He and his investment partner didn't think so. Vatistas figured that a weak market was a perfect opportunity to poach top agents. He also reasoned that higher-end homes are surprisingly resilient to market swings, compared with the pain that houses in the middle of the market typically suffer.

So Vatistas began raiding Coldwell Banker branches (two have closed in the area) and other firms and hiring away their best agents. In all, he lured 232 agents - including Sandra Baldwin, who had been Coldwell's top producer in Phoenix for 16 years running - to join his startup, Equitable Real Estate.

Just one year out of the gate, Equitable has chalked up $600 million in home sales.

Vatistas estimates that Equitable's home-sale transactions will hit at least $1 billion in 2007, and that the company will be profitable by then, in part because it has no debt and owns most of its offices.

He also is not worried about new online services like PropertyShark and Trulia that are displacing agents. "In the Phoenix area, that's happening at the low end," Vatistas says. "We don't compete there. But the high end of the market is intensely relationship-driven and, I think, more resilient in a downturn."

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Most of the money he invested went, literally, to building Equitable's brand - a big factor in holding onto wealthy clients. Vatistas and his partner, Scott Barker, spent $12 million building or renovating five offices in Scottsdale that feature flat-panel screens displaying area maps, and the flagship location has a $35,000 glass sculpture behind the front desk.

But fancy digs aren't the only inducement Equitable has offered converts. It allows its agents to keep as much as 95 percent of their commissions, compared with only 75 to 80 percent for top agents at most Phoenix-area firms.

The basic strategy, Vatistas adds, would be easily exportable to other markets that have had huge explosions in both housing inventory and prices - and tension between top agents and real estate franchises. Nearby Las Vegas and Southern California share some of those characteristics, but Vatistas says he has his hands full in Phoenix.

"The population here is going to grow 50 percent in the next two decades," he says. "My firm is going to stay small and ride that wave."


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